Pisani: Economy Is Overheated? Huzzah!
Great news! We're growing too fast. China's GDP surged 10.7 percent in the fourth quarter compared to the same period a year ago, above expectations of a gain of 10.5 percent. Economic growth for 2009 came in at 8.7 percent. The minimum usually cited to continue to create jobs is 8 percent, so by any measure China is in good shape (assuming the numbers are accurate).
So why has the Shanghai Index stalled out? Because Chinese officials are clearly signalling they are going to slow the economy down. It's a reasonable fear: a $586 billion stimulus plan, combined with massive, low-cost lending and a GDP over 10 percent, is good enough reason to worry about an asset bubble.
Deutsche Bank told clients they believe China will likely hike interest rates in the second half of March.
The Shanghai Index was up fractionally, but the Hang Seng Index in Hong Kong was down almost 2 percent. It topped out in August.
1) Goldman Sachs up 2 percent on reported earnings well above expectations ($8.20 vs. $5.19), revenues in line with expectations of $9.62 billion. Why such a big difference in reported vs. expected earnings? Because they didn't pay people nearly what they used to! Trading and principal investment were two-thirds of the revenue, by the way.
Regardless, with announcements from President Obama and Paul Volcker coming later in the day, there is a lot of nervousness about financials.
2) Glass Steagall redux? President Obama will propose to limit financial the size of financial institutions and also limit proprietary trading activities in a speech later this morning. Whether this will result in an outright separation of commercial and investment banking activities is not clear, though. (Dick Bove says: Glass-Steagall Redux Would Be a 'Boon')
Our Steve Liesman says administration officials do not want to bring back Glass Steagall, they just want to separate a bank's proprietary trading from what it does for its customers.
This, in addition to the fee the President proposed last week to recover losses from the TARP program.
Traders yesterday were adamant that no matter what the President proposes, the likelihood that more radical reform proposals will go through is much lower after the Massachusets Senate election.
3) KeyCorp up 4 percent pre-open, reported a loss on continuing operations of $0.30, above consensus of a loss of $0.40.
Good news: credit problems are stabilizing.
Bad news: as with all the regional banks, the balance sheet is shrinking fast...lending is way down. So while everyone is focused on credit, the real question will soon be: what do these guys look like on the other side of this?
4) Improvements in traffic are helping airlines turn in profits in the latest quarter:
Continental Airlines rises 3 percent after posting a surprising Q3 profit (profit of $0.03 vs. loss of $0.07 consensus). Passenger demand improved in the quarter: the airline's load factor (how full a plane is) rose 3.3 percentage points from the year ago period, and revenue per available seat mile fell at a slower pace than the prior quarter.
Although business travel activity increased, Chief Executive Jeff Smisek cautioned a "long and slow road to recovery" is still expected.
Southwest Airlines also rises 3 percent after it too turned in better-than earnings as the domestic carrier continued to fill significantly more seats on its planes. Its load factor jumped nearly 10 percentage points in the quarter and that helped revenues per available seat mile rise 7 percent - despite seeing lower ticket prices.
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Tech, Health Care...and More China
Tech, Health Care...and More China:
5) Tech earnings continue to be strong:
Fairchild Semiconductor gets a 7-percent boost after Q4 earnings topped expectations as it contained costs and saw stronger-than-expected chip sales. The chipmaker also sees Q1 revenues of $370 million, above the Street's current forecast of $336 million.
Hard drive maker Seagate soars 12 percent pre-open after handily beating estimates ($1.05 vs. $0.65 consensus) as stronger disk drive demand helped drive revenues which jumped a higher-than-expected 33 percent. Margins significantly improved too in the last quarter, and they are expected to continue at levels above the firm's original expectations.
Competitor Western Digital trades 5 percent higher pre-open on Seagate's stellar earnings.
6) UnitedHealth saw its Q4 results top estimates ($0.81 vs. $0.73 consensus), boosted by the performance of its Medicare and Medicaid units, which saw higher enrollment. Meanwhile, membership in private sector plans fell by 130,000 people from the prior quarter due to higher job cutbacks.
Also helping the health insurer: its medical costs increased slightly from a year ago, but grew less than the company had expected - primarily due to easing concerns related to a H1N1 epidemic. Full year 2010 guidance was also reaffirmed, inline with the Street consensus.
7) Is the ETF explosion headed to China? The Shanghai Stock Exchange announced that it seeks to issue the country's first ETF later this year. The new ETF will track shares of Hong-Kong listed Chinese companies (H-shares). Additionally, the Shenzhen Stock Exchange is exploring the introduction of a separate ETF that would track Hong Kong's benchmark Hang Seng Index.
8) Simon Property Group floated $2.25 billion in bonds. You will see a lot of debt and equity issuance from REITs in the coming months.
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